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Portugal signs ‘a contract to kill the European social model’.

Portugal has become the first European country to approve the EU’s fiscal compact, known to critics as the ‘permanent austerity’ treaty. The country’s parliament made the move Friday, and also approved the European Stability Mechanism – the much derided long-term ‘bailout’ fund.

Portugal is one of three eurozone countries to be ‘rescued’ by the EU and the International Monetary Fund as alarm over the state of public finances pushed up borrowing rates on international bond markets to unsustainable levels first for Greece and then Ireland.

The country is also one of the 17 eurozone countries having the greatest difficulty in meeting deficit targets thanks to punishing austerity measures demanded last year by the troika (EU, IMF and ECB) in exchange for its ‘rescue’ package.

Portugal’s ratio of debt to gross domestic product (GDP) is expected to hit 115% at the end of the year from around 110 percent currently and then gradually decline. Debt was 93.3% of GDP in 2010

Portuguese Prime Minister Pedro Passos Coelho, arguing strongly in favour of the pact in a speech on Thursday to parliament, where he has a comfortable centre-right majority, said that the budget pact “represents our refusal to repeat the errors of the past.”

The Socialist party, the main opposition force, voted in favour so as not to undermine the ‘credibility’ of the country.

Despite arguing that the pact does not give enough attention to growth and jobs, Socialist leader Antonio Jose Seguro said that ‘it is in the name of the option for Europe chosen by Portugal that we shall vote in favour.’

Ahead of the vote the Socialist Party had originally said it would suspend the whip but changed its mind when a number of rebels – Pedro Nuno Santos, Isabel Moreira, Pedro Alves (leader of the Young Socialists), Rui Duarte, Duarte Cordeiro e João Galamba – indicated they would vote against.

The Socialists, who were ousted from power in elections in June last year by Passos Coelho’s right-wing coalition amid rising unemployment and social misery, backed the 2011 Troika austerity programme.

The EU Fiscal Compact was signed in Brussels on March 2 by 25 of the European Union countries after tortuous negotiations, but it was not signed by Britain and the Czech Republic.

Ireland has signed the pact but is putting it for approval by referendum.

In Germany, the biggest eurozone economy, the opposition Social Democrats want the pact to include more measures to encourage growth. The country may ratify the pact only at the end of the year even although the government has said it would like to see approval at the end of May.

In France ratification of the pact depends on the outcome of upcoming presidential elections. French Socialist presidential frontrunner Francois Hollande has said he would like to renegotiate the pact to include more steps to boost economic growth.

Italy’s Senate was set to take a vote earlier this week, but this has postponed until April 17-18,and campaigners who on April 11 staged a ‘sit in’ of the upper parliamentary house in Rome in anticipation of the vote have promised a repeat protest next week.

Officially known as Treaty on Stability, Coordination and Governance (SCG), the pact requires the budget of a country to be in balance or in surplus, which means that in structural terms – that is excluding one-off items and business cycle variations – the deficit is capped at 0.5% of gross domestic product (GDP)

Only countries which have debt to GDP ratios significantly below 60% can have a bigger structural deficit, but not more than 1% of GDP. A country with public debt higher than the EU limit of 60% of GDP has to reduce it by one twentieth a year as a benchmark.

Transgressors face penalties of 0.1% of GDP.

The SCG, described by critics as the Permanent Austerity treaty, is set to come into force once it has been passed by the parliaments of at least 12 countries that use the euro currency or at least by 1 January 2013.

The Portuguese government’s spending cuts and tax rises to meet the terms of the 78 billion-euro aid plan from the EU and the International Monetary Fund have allowed it to slash Portugal’s budget deficit to 4.2% of output last year, less than half of the 9.8% reported for 2010.

But the austerity has plunged the country into a deep recession. The Portuguese economy is expected to contract by over 3% percent this year while the jobless rate will surpass 14%.

The austerity package has included the privatisation of several industries, cuts to public sector wages, deeply backward reforms to employment laws and a rise in taxes, including the socially regressive value added tax.

Death rates are increasing in part because of because health service cuts.

Poverty rates, already highest in the EU, are rising with 2.7 million living below the poverty line of €434 a month. And there’s growing in-work poverty too, with half a million people (or 20%) under-employed, that is working less than they would like or need.

The austerity measures sparked a general strike last month and a string of mass protests in recent weeks and months.

In a parliamentary debate Thursday, radical left parties said the EU fiscal compact would limit the options of governments ‘forever’.

The Left Bloc and Portuguese Communist Party said that the change to the Portuguese constitution implementing the new EU Fiscal Compact imposed ‘a rule of lead’ on the Portuguese economy and would limit the options of governments ‘forever’.

The Left Bloc’s Ana Drago accused the prime minister of ‘a pure negation of truth’ in his opening remarks backing ratification and rejected the claim that there was a general consensus on the Pact.

After criticizing the right-wing PSD / CDS-PP government she described the pact as ‘a contract to kill the European social model’.

The Left Bloc MP recalled the position of foreign minister, Paulo Portas, when a few years ago he called for a referendum on Treaty of Lisbon.

‘What do you fear? If [the treaty] is so important, put it to the Portuguese people?’

The parliamentary leader of the Portuguese Communist Party, Bernardino Soares, stated that the Treaty was ‘a violent attack on national sovereignty and independence’ condemning Portugal to the ‘prior approval of Germany’. He accused the government of rushing through the law for ‘fear that the Portuguese become aware of what is at issue and spoil the little arrangement. ‘

‘At stake is a huge counterfeiting operation,’ he said.

About revoltingeurope

Writer on Europe's Left, trade union and social movements @tomgilltweets or @revoltingeurope


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